Remember When Judge Rakoff Humiliated Citi? A Court Just Rejected His Ruling

An appeals court issued a stay this morning of a November ruling
blocking the SEC's $285 million with Citi Group
over charges it fraudulently sold collateralized debt
obligations, shooting down Judge Jed Rakoff's controversial
judgment.

The Second Circuit Court of Appeals ruled that it had no reason
to doubt the SEC’s claim that the settlement was in the public
interest, and in any event both courts must give deference to the
SEC’s judgment on wholly discretionary matters of policy.

The court also referenced the difficulties, frequently mentioned
by the SEC, of
obtaining convictions of a counterparty.

"The (district) court appeared to assume that the SEC had a
readily available option to obtain a judgment that established
Citigroup’s liability, either by trial or settlement, but chose
for no good reason to settle for less," the ruling stated.

Citi ended up joining with the SEC in filing the stay motion.
"Citigroup joins with the SEC in all of its arguments," the
ruling notes.

In November,
Judge Rakoff rejected the SEC's settlement, saying it was
“neither reasonable, nor fair, nor adequate, nor in the public
interest." He also questioned the merit of the SEC's "neither
confirm nor deny" policy.

The appeals court's ruling will likely make it difficult if not
impossible for lower courts to override future settlements
brought by the SEC.

"We are
pleased that the appeals court found 'no reason to doubt' the
SEC’s view that the settlement ordering Citigroup to return $285
million to harmed investors and adopt business reforms is in the
public interest," SEC Enforcement Director Robert Khuzami said in
a statement.